August 7, 1996
Overview
Fifth District economic growth moderated somewhat in June
and July. Manufacturers reported slower activity, particularly in
textiles. Decreased imports led to a decline in port activity, and
sluggish housing sales translated into weaker residential
construction. Service sector activity expanded; retail sales grew at
a steady pace; and commercial real estate activity strengthened.
Contacts in several sectors continued to report wage pressures.
Despite the adverse impacts of Hurricane Bertha, tourism expanded
and yield prospects for some crops improved.
Retail Trade
District retailers reported that retail sales growth
changed little in recent weeks, although big-ticket sales,
inventories, and shopper traffic grew more slowly. Respondents to a
mail survey indicated that employment growth picked up and wages
rose faster in July. Over the past several weeks, retail prices rose
at a faster rate and retailers expected the rate of increase to
accelerate somewhat during the next six months. Contacts anticipated
a slight decrease in demand for their products in the second half of
the year.
Services
Service producers contacted by mail indicated that the
pace of business activity increased in July. Revenues and wages grew
more quickly and employment growth was unchanged. Service producers
said their prices rose faster in July than they had in June.
Respondents expected prices and demand for their products to rise
during the next six months.
Manufacturing
Manufacturing activity weakened in July and tight
input markets continued to constrain some firms. Except in West
Virginia, respondents to a mail survey of District manufacturers
reported declines in shipments. Most durable-goods producers
indicated that new orders had weakened in July, although one West
Virginia manufacturer noted that his company had difficulty meeting
its customers' delivery requirements. Manufacturers continued to
indicate that their inventories were above desired levels. Textile
manufacturers reported that sluggish apparel sales forced them to
cut back production to avoid inventory buildups. Several industrial
machinery and equipment suppliers reported that their output was
constrained by a scarcity of skilled labor. Manufacturers indicated
that finished goods prices increased slightly and that raw materials
prices were down slightly in July from June. Respondents' six-month
outlook was for lower finished goods prices and somewhat higher raw
materials prices.
Tourism
Tourist activity continued to pick up in July despite the
effects of Hurricane Bertha along the District's coastal areas. Our
contacts noted that activity during the Fourth of July holiday was
above a year ago and they attributed the increase to unseasonably
mild weather and the holiday falling late in the week. One contact
from a popular mountain resort in West Virginia reported that the
Fourth of July tourist activity was the strongest in that resort's
history. Hurricane Bertha inflicted only minor property damage along
the District's coastal areas, but a contact from North Carolina's
Outer Banks told us that the area lost over $5 million in business
revenues after tourists were evacuated. A hotel manager in the
Virginia Beach area said he had 300 rooms vacant because of the
hurricane. Contacts reported that summer bookings continued to look
good.
Port Activity
Activity at District ports declined in June from May.
When compared to a year ago, export shipments increased and imports
fell. Port representatives continued to anticipate that exports and
imports would increase during the next six months, with five of six
ports expecting exports to rise faster than imports. One port
contact attributed the pickup in exports to increased shipments of
poultry to Eastern Europe and auto parts to South America.
Temporary Employment
The demand for temporary workers continued to
increase in recent weeks. Demand was particularly strong for
secretarial help, skilled warehouse and production workers, and
computer-literate workers; the need for general laborers declined.
In most areas of the District, temporary workers' wages were
unchanged, and contacts in those areas expected little change during
the next six months. However, in areas of the District with low
unemployment and a shortage of skilled labor, temporary-worker
agencies reported pay hikes and expected further increases in coming
months.
Finance
District contacts reported that overall loan demand
softened slightly in the last six weeks. The demand for mortgage
loans, especially refinancings, continued to weaken in the face of
higher interest rates. Many contacts noted that while higher
mortgage rates had pushed some marginal home buyers out of the
market, some qualified buyers were "priced out psychologically" by
the higher rates. According to several lenders, current economic and
political uncertainty had also left many commercial borrowers
"sitting on the fence."
However, one contact noted that since the first of June, lending for commercial real estate development in his area had picked up considerably.
Residential Real Estate
District real estate agents and
homebuilders contacted by telephone indicated that residential real
estate activity softened somewhat in most areas of the District in
June and July as potential home buyers' interest waned. Builders
reported that they took out fewer building permits and started
slightly fewer homes. A West Virginia homebuilder reported that the
largest supplier of residential electrical supplies in his area went
out of business because of sluggish housing construction activity.
District real estate agents said that, despite higher customer
traffic, sales were sluggish. One contact summed up the situation by
observing, "the traffic is nice, but the sales conversion ratio is
low." Despite somewhat lower activity, pressures on inputs markets
remained. Lumber prices increased and subcontractor wages rose. A
South Carolina homebuilder told us, "we are scraping bottom for
labor in our area."
Commercial Real Estate
Commercial real estate activity picked up in
June and early July. Commercial real estate brokers contacted by
telephone indicated that leasing activity continued to escalate; one
South Carolina contact said activity in his area was at a "fevered
pitch." Vacancy rates declined, and rental rates continued to climb,
as they have since last fall. A South Carolina contact noted that
"rent concessions have evaporated," and a North Carolina respondent
said she expected the market in her area to stay "landlord-
oriented." The availability of prime office space continued to
tighten, and many contacts reported shortages. Respondents
throughout the District, and especially those in North Carolina,
witnessed an increase in new construction.
State Revenues
State tax collections were higher in West Virginia
but were flat in other District states in June. Withholding tax
collections increased significantly in West Virginia as employment
growth improved over the past two months, particularly in the
construction and business service sectors. Growth in retail sales
collections remained the same in South Carolina, Virginia, and West
Virginia; were slightly lower in Maryland; and rose substantially in
North Carolina. Real estate receipts rose in Maryland and West
Virginia. However, one Virginia contact indicated that fewer
mortgage refinancings had reduced real estate recordation receipts.
Agriculture
Intense storms damaged some District crops, but the
rains associated with the storms benefited others in recent weeks,
according to agricultural analysts. Hurricane Bertha caused up to
$180 million in crop damage in North Carolina--over half of that to
the tobacco crop. Corn and cotton also sustained substantial damage.
On the plus side, Bertha's rains were credited with saving the corn
crop in the eastern areas of Maryland and Virginia that had been
suffering from severe drought; an agricultural extension agent now
looks for a "bumper" corn crop there. Post-Bertha thunderstorms in
late July led to scattered crop damage in parts of Virginia and
Maryland, but also improved District crops' yields prospects.